Life Policies of America is a California based provider with long experience in Life Settlements.
The Life Settlement market has been though waves of funding and re-definition, but most in the market still do not understand what the Life Settlement market encompasses.
The present state of the industry in dismal:
Most funders have lost money.
Life settlements are essentially confined to larger policies. Market penetration is very low.
Policies are being manufactured to meet the perceived life settlement market.
Insureds are coached to produce the right Life Expectancies.
Times to close life settlements are absurdly long - it can take 3 to 6 months.
Transaction and commission costs are very high and totally out of proportion to the value of the assets.
There is no effective tertiary market for life settlements.
Funders Losses
To date most Funders of life settlement have lost money. Some much more spectacularly than others.
This is not because of the GFC, though it does have bearing. Recently hedge funds have had to rapidly de-leverage to meet withdrawals and finding that they either can’t sell their portfolios or only sell at deep discounts. Some Funds have borrowed short for a long illiquid investment in life settlements.
MA major loss contributor has been poor and inconsistent life expectancy evaluations. Any fund invested in life settlements at September 2008 has suffered major losses due to changes by all of the major Life Expectancy providers to their life expectancies. Depending upon age, sex and conditions life expectancies blew out between 10% and 30%.
A 10% change in life expectancy can translate to a loss in net present value of a policy of up to 20%. A 20% change can translate to a 40% loss and so on.
So even modest changes to life expectancies have had devastating impacts on policy values.
Changes to life expectancies are not isolated occurrences but have occurred at regular intervals. Sometimes simply adjustments and other times wholesale disruptive changes.
The life expectancy is the driver of the pricing of a life settlement. Current and historical changes show that the the system of external life expectancy providers is highly flawed and unreliable. Investors have found to their loss that the house of life settlements is built on a very shaky base of unreliable life expectancies.
